EUROPEAN COMMISSION S PUBLIC CONSULTATION ON

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1 The Consumer Voice in Europe EUROPEAN COMMISSION S PUBLIC CONSULTATION ON CONTRACT RULES FOR ONLINE PURCHASES OF DIGITAL CONTENT AND TANGIBLE GOODS BEUC response Contact: Ursula Pachl, Agustín Reyna, Christoph Schmon consumerrights@beuc.eu digital@beuc.eu BUREAU EUROPÉEN DES UNIONS DE CONSOMMATEURS AISBL DER EUROPÄISCHE VERBRAUCHERVERBAND Rue d Arlon 80, B-1040 Brussels Tel. +32 (0) consumers@beuc.eu EC register for interest representatives: identification number Co-funded by the European Union Ref: BEUC-X /09/2015 1

2 General remarks BEUC welcomes the European Commission s consultation on contract rules for online purchases of digital content and tangible goods. Although consumers increasingly take part in the digital market, there are still significant obstacles and legal uncertainties related to consumer contract law. This is particularly the case when consumers buy digital content products, such as music, apps, software, ebooks or films. In most Member States, consumer protection laws are inadequate for dealing with the particularities of digital products. The problem of the lack of an enforceable legal framework for those types of products undermines trust in the EU digital market, a challenge that must be tackled at EU level. The Commission has rightly identified the updating of its consumer laws as a priority area, and has consequently announced a legislative initiative for the online purchase of digital content as one of the key initiatives of the Digital Single Market strategy. BEUC supports the European Commission s intention to develop European rules for digital content products. This is a missing piece of the consumer law acquis, particularly with respect to guarantee rights and specific unfair terms in digital services. A second legislative initiative announced in the Digital Single Market strategy deals with the online sale of tangible goods. Whereas we agree that there is an urgent need for new rules on digital content products, we remain sceptical as to whether special rules for online purchases of tangible goods are necessary since there are already extensive EU laws in place. The 2011 Consumer Rights Directive, for example, offers a comprehensive framework for consumer rights that is also applicable to online sales, and that significantly helps to reduce legal fragmentation whilst granting a high level of protection to consumers. As regards the rights and remedies available to consumers when a good does not conform to its contract, the Consumer Sales Directive guarantees minimum protection standards across the EU. While it could make sense to further harmonise these rules throughout the EU, the creation of a parallel legal guarantee scheme applicable only to goods purchased online is highly questionable. Separate regimes for online and offline purchases is not a desirable concept from a consumer policy perspective. Instead, the European Commission should continue to evaluate the functioning and potential reform of the Consumer Sales Directive as already envisaged in the framework of the 2016 REFIT exercise, and propose solutions to modernise this piece of legislation. In the meantime, model contracts for the online sale of goods could be developed and agreed between different stakeholders, such as consumer associations and e-commerce business organisations. Finally, in its Digital Single Market strategy, the European Commission proposes allowing traders to rely on their national laws based on a focused set of key mandatory EU contractual rights for domestic and cross-border online sales of tangible goods. The announcement that traders should be able to rely on their national laws (also referred to as the home option ) raises many questions and can be variously interpreted. From a 1

3 consumer policy point of view, such an approach is highly problematic as it could lead to the circumvention of existing national consumer protection standards granted by conflict-of-laws rules for cross-border transactions (as stipulated in the Rome I Regulation). These conflicts of law rules function as a safety net in case serious consumer problems arise and must remain fully applicable. Part 1 Digital content Section 1 Problems 1. In general, do you agree with the analysis of the situation made in the "Context"? Please explain. Yes, BEUC agrees with the analysis. Consumer harm in this sector has to do to a significant degree with the fact that European consumer protection legislation is barely applicable to such transactions and national legislation in nearly all Member States has not adapted to these types of products. This has led to legal uncertainty, a lack of consumer confidence and fragmentation of the Internal Market. Legal uncertainty and the absence of European rules are felt particularly with regard to the question surrounding the consumer s rights against a defective digital product: for example, are consumers entitled to claim a replacement or a refund? Consumers face additional difficulties because of overly complex, unfair terms and conditions which are often presented as EULAs, suggesting that limitations on use and technical protection measures have total precedence over legitimate consumer expectations and the balance of the parties rights. 2. Do you think that users should be more protected when buying digital content products? Please explain why by giving concrete examples. Consumers should be as far as possible equally protected when buying tangible goods or digital content. However, as digital content are more complex products, additional protection may be needed particularly when exercising the rights i.e. the supplier should be the one to prove that the defect was caused by the consumer and not the other way around. This should apply even beyond the so-called reversal of the burden of proof period. Behavioural insights and economic studies showed that consumers face multiple concerns when it comes to accessing and using digital content products. They have been exposed by an economic study carried out for the European Commission in , which grouped consumer harm in five categories: information and transparency; unfair terms and conditions; quality and access and privacy and security 2. 1 EUROPE ECONOMICS (2011), Digital content services for consumers: Assessment of problems experienced by consumers, available at: 2 Europe Economics, p

4 This study estimated the economic consumer detriment in the digital content market in the region of 64 billion Euros per year 3, from which 53,5 billion Euros were related to lack of access 4 and contract-law related issues 5. In addition, there are numerous practical examples that can be cited to demonstrate the unique difficulties facing consumers in the area of digital content and thus the need for high levels of consumer protection. For example, our UK member Which? reported consumer concerns related to hidden costs of software updates 6, software updates causing operability problems 7 and bugs embodied in software 8. The Norwegian Consumer Council in 2012 brought an interesting case against Sony when they discovered that in the terms of service of PlayStation 3 Sony claimed a universal right to change or remove functionality from the gaming console. In other words, Sony was able to remove other operation systems installed by the consumer like Linux in order to use the video-game console as a PC. Therefore, limiting the use of PlayStation 3 to what is offered by Sony s own operational system 9. Restrictions in use are a common pattern in the supply of copyrighted material. Cases concerning limitations in the transferability of the content were raised in several occasions in German courts. Similarly, limitations steaming from Technical Protection Measures were central in cases related to format shifting of DVDs in France and Belgium. 3. Do you perceive difficulties/costs due to the absence of EU contract law rules on the quality of digital content products? Please explain. Currently, national contract law regimes apply. This means that there is no total absence of legal rules. For example, in France, when software is supplied in a durable support, part of the jurisprudence would consider the contract as sales while others see it as a contract of hiring. However when it comes to consumer contracts, as many parts of the Consumer Code apply indistinctly to goods and services or to tangible or intangible items, consumer would be somehow still protected in these transactions. The difference is given when it comes to legal guarantees, which exclusively apply - following the European model - to tangible mobile items. Similarly, in Germany, the categorisation of a contract for the supply of digital content took place in the frame of software transmitted embodied in tangible media, either preinstalled in a computer or supplied in a CD. The German Federal Supreme Court estimated that when software is supplied in tangible medium it should be treated like goods for the purpose of non-conformity and remedies. This jurisprudence anticipated 3 This number represents the estimated gross loss including financial loss and value of time lost for the total online population in the EU 27 in 2010, see Europe Economics p Access problems are described as unexpected service interruptions caused by unforeseen events at the supplier s end and to a lesser extent to portability and cross-border access, see Europe Economics p including lack of information; unclear and complex information; quality issues and unfair contract terms. 6 ; ; ps3-wii-pc/ ;

5 the 2002 reform of the BGB (schuldrechtsreform), establishing in Section 453 (1) that the provisions on the purchase of things apply with the necessary modifications to the purchase of rights and other objects. However, since in contracts for the supply of digital content there is no transfer of ownership - which is retained by the rightholder under copyright law - it is not always clear to what extent this sales-analogy could be applied to other products different to software. As pointed out by Professor Rott in his report for the Amsterdam Study 10, the purchase of software or other copyrighted content could be seen as a special type of licensing contracts. This is based on the idea that what is transferred to the consumer is not a good but the entitlement to use an idea. In Spain, digital content is not specifically covered and therefore the several rules of the Civil Code may apply. It is worth mentioning however that when the Spanish legislator transposed the Consumer Sales Directive, contrary to other national legislators, it adopted a broader material scope by covering products instead of just goods. Therefore, part of the Spanish academia considers that for the purpose of conformity rights, the regime of the Consumer Sales Directive would be applicable also to digital content. However, these national interpretations do not provide sufficient legal certainty to address consumers problems when purchasing or accessing digital content because they are based on a legislation drafted for tangible goods and not taking into account the particularities of the digital environment, including digital content supplied in exchange of personal data. The only country to our knowledge that has adopted a specific law for B2C contracts of digital content products is the UK. This is a positive development for British consumers but at the same time it increases the risks of fragmentation across the EU if national legislators start developing their own systems to protect consumers in digital content contracts. Thus, EU is in a unique position now to develop a European framework addressing legal uncertainties around the rules applicable to B2C contracts whilst preventing further fragmentation of national laws. 4. Do you think that upcoming diverging specific national legislations on digital content products may affect business activities? Please explain. We do not respond, at this point, to questions related to business activities. From a consumer policy point of view, however, there is a lack of legal protection and significant legal uncertainties under national laws in the area of digital content products that justify a legislative initiative

6 Section 2 Need for an initiative on contract rules for digital content products at EU level 5. The European Commission has explained in the Digital Single Market Strategy 11 that it sees a need to act at EU level. Do you agree? Please explain. Yes, BEUC has called in the past for further harmonisation in the field of digital content products. We believe this is a missing piece in the consumer law acquis and we welcome the European Commission s vision to bring clear rules at EU level for contracts for the supply of digital content products. 6. The European Commission has announced in the Digital Single Market Strategy that it will make a proposal covering harmonised EU rules for online purchases of digital content. Other approaches include, for example, the development of a voluntary model contract that consumers and businesses could use for their cross-border e- commerce transactions or minimum harmonisation. What is your view on the approach suggested in the Digital Single Market Strategy? When it comes to digital content products, BEUC believes it is possible to achieve a further harmonisation. Since national laws remain underdeveloped,full harmonisation in this area could be possible provided that it is at a truly high level of consumer protection. A voluntary model contract could be considered as a complementary measure but it needs to count on a European legal framework within the consumer acquis to serve as a legislative background. Section 3 Scope of an initiative 7. Do you think that the initiative should cover business-to-consumers transactions only or also business-to-business transactions? Please explain. Due to the nature of our activities, BEUC favours a B2C instrument. 8. What specific aspects in business-to-business transactions, if any, should be tackled? Please explain. See answer to question Digital content products may cover inter alia the products listed below. Which of these digital content products/services should be covered by the initiative (tick as many as apply)? 11 A Digital Single Market Strategy for Europe COM(2015)192 final. 5

7 games, including online games media (music, film, sports, e-books) for download media (music, film, sports) accessible through streaming social media storage services on-line communication services (for example, Skype) any other cloud services applications and any other software that the user can store in its own device any software that the user can access online any other service that is provided solely online and result in content that the user can store in its own device (such as translation service, counselling) any other service that is provided solely online Please explain your choice(s). BEUC supports the digital content definition included in the Consumer Rights Directive and we believe it should be replicated in the forthcoming proposal to keep consistency between different consumer law instruments. Additionally, a broad definition is necessary in order to encompass all types of digital products to ensure legal certainty of the applicable legal regime while not precluding future technological developments and the emergence of new methods of distribution of digital products. However, not all services concluded online should be considered as digital content. For example a translation service provided by a qualified translator or legal counselling should continue being subject to the respective deontological rules. An additional element to take into account is whether there has been a contract between the consumer and the supplier of digital content and what are the conditions around its conclusion to trigger the application of the conformity rules of the new instrument. For example, the CRD Guidance Document refers to the express conclusion of a contract and therefore this could exclude contracts concluded through browse-wrap agreements. If that is the intention of the Commission in the use of the term express, this should be clarified as in both click-wrap and browse-wrap agreements there could be a conclusion of a consumer contract in the sense of article 1 of the Consumer Rights Directive. Finally, many issues related to digital services like storage and social networks were discussed in the frame of the Commission s Expert Group on Cloud Computing Contracts. The discussions highlighted the problem of unfair terms in contracts for the supply of cloud-based services. BEUC considers that the Commission should also consider developing rules for these type of services. However, as for Voice over IP (VoIP) services, the APP or software needed to access the service should be consider as digital content but not the communication service as such. Any regulation related to quality of service of VoIP should be done in the telecommunications framework and respecting the principle of net neutrality. 6

8 10. Digital content products can be supplied against different types of counterperformance. Which of the following counter-performances should be covered by the initiative (tick as many as apply)? Money Personal or other data actively provided by the user (for example, by registration) Data collected by the trader (for example, the IP address or statistical information) Activity required by the user in order to access the digital content (for example, by watching an advertisement video, or visiting another homepage) Please explain your choice(s). We consider that all counter performance should be covered. However, the guiding principle should be whether there is a contractual relationship or not. The different types of counter-performance mentioned are all sufficient for the conclusion of a binding contract and this should be made clear in the new instrument. That is way it is important to clarify the scope of application of the instrument vis-à-vis browse-wrap agreements. Section 4 Content of an initiative 11. Among the areas of contract law below, which ones do you think are problematic and should be covered by an initiative (tick as many as apply)? Quality of the digital content products Remedies and damages for defective digital content products How to exercise these remedies, like who has to prove that the product was, or was not, defective (the burden of proof) or time limits for exercising these remedies Terminating long term contracts The way the trader can modify contracts Other (please specify) Please explain your choice(s). An instrument covering digital content products should be as comprehensive as possible thus, BEUC agrees on the inclusions of conformity criteria, remedies and the exercises of such remedies. BEUC would also support the inclusion of a rule for the termination of long-term contracts irrespective of whether the termination is caused by lack of conformity. This could be particularly relevant for subscription contracts. However, the right to terminate the contract within a certain period of time should work as a minimum standard and companies should be able to offer to consumers the possibility to terminate the contract whenever they want, as it is a common practice among suppliers of streaming services of music and audio-visual content. Concerning the unilateral modification of the contract, we agree on the inclusion of a specific rule setting out the criteria to modify the contract and / or the service. 7

9 Particularly, we would welcome a rule allowing the consumer to terminate the contract when the modification alters the performance of the service or the price and to retrieve all his data in a usable format. Additionally, the instrument should also cover specific unfair contract terms. Current businesses models for the distribution of digital content raise a number of concerns from the consumer s perspective regarding the compliance of End-User Licence Agreements with legislation on unfair contract terms. Contrary to the 1999 Sales of Goods Directive, the 1993 Unfair Contract Terms Directive applies to digital content contracts. However, there are uncertainties as to how it applies to these products and not all relevant problem areas are clearly covered. In contracts for the supply of copyrighted content, TPMs are enforced in clauses prohibiting the user to do certain acts like for example bypassing the technical measures. These types of clauses find their source in article 3 of the Copyright Directive. However, we have found that in some cases rightholders or suppliers go too far in prohibiting certain uses that would be legitimate for the consumer like format shifting. If we take the case of an e-book, in many instances the user is not allowed to transfer it or change format, for example into a pdf to be able to print it for a personal and noncommercial use. A similar case we have in relation to the format in which audio-visual content is provided e.g. to pass a movie (downloaded on a permanent basis) to a DVD in order to reproduce it on the TV. Again for personal and non-commercial purposes. Case law at national level (see: Belgian case Trib. Brussels, 25 May 2004, RG 2004/46/A and French Mulholland Drive case, both initiated by Test-Achats and UFC-Que Choisir, respectively) declared that format shifting as a form of private copying is illegal if the right holder decided within the freedom granted under copyright law to bypass the private copying exception through the application of DRMs. This confirms the wide discretion of right holders to decide under copyright rule how consumers can access and use content. However, if those contractual clauses are scrutinised under the fairness control of the Unfair Contract Terms Directive some of the prohibitions could be considered unfair. Notably format shifting for personal use. For example in the UK a survey carried out by Which? showed that six in ten people (63%) believe that they should be able to copy copyrighted works for personal use. However, this is not reflected in the T&C of providers of digital content. Another type of unfair term relates to restrictions in the use of the digital content. For example, a consumer cannot transfer a video game to a friend because it is linked to a specific subscription account or cannot use a different software on the game console than the one provided by the manufacturer because the supplier has reserved the right to update the software at their own discretion and even delete an operational system installed by the consumer that is not the one provided. Our Norwegian member entered into a legal battle against Sony because of this and although they counted on the support of the national enforcer; the case was turned down by the court because there were no specific remedies protecting consumers against such practices. 8

10 Another case of unfair terms relate to restrictions in the portability and use of ebooks. For example, a study 12 carried out by our Norwegian member showed that Amazon reserves the right to delete all the purchased e-books from the consumer s account if the consumer terminates the contract with Amazon. Finally, we included other typical unfair clauses in digital services in our contribution to the European commission s expert Group on cloud computing contracts: Quality of the digital content products 12. Should the quality of digital content products be ensured by: Subjective criteria (criteria only set by the contract) Objective criteria (criteria set by law) A mixture of both Please explain your choice(s). BEUC considers that the criteria of the current conformity test under the Sales Directive could be applied to contracts for the supply of digital content. A mixture of objective and subjective criteria seem to be appropriate as it will provide sufficient flexibility as regard future forms of supplying digital content. One key issue debated in the UK during the adoption of the Consumer Rights Act was around consumer expectations as a conformity criterion. For example, it was argued that digital content was unlike tangible goods so, for example, a consumer might expect a good such as a fridge to be free from any defects, even minor ones, but this it was not necessarily the case for digital content. This is not entirely true as the consumer may expect a higher level of performance from a software downloaded in exchange of a payment than a beta version for free. Thus, we consider that the consumer s legitimate expectations should be maintained as a criterion. 13. When users complain about defective products, should: Users have to provide evidence that the digital content products are defective Traders have to provide evidence that the digital content products are not defective if they consider the complaint to be unfounded Please explain your choice(s). It is extremely difficult for a consumer to prove the cause of the defect of a digital content product therefore it would be more appropriate that the burden of proof lies on the supplier. 12 The final version of the study is not public at the time of writing this contribution. 9

11 Remedies for defective digital content products 14. What are the key remedies that users should benefit from in case of defective digital content products (tick as many as apply)? Resolving the problem with the digital content product so that it meets the quality promised in the contract Price reduction Termination of the contract (including reimbursement) Damages Other (please specify) Please explain your choice(s). BEUC considers that the remedies applicable to tangible good should be made applicable as far as possible to digital content products. This includes bringing the digital content into conformity (e.g. repair or replacement), price reduction and reimbursement. Thus, we agree with the list of remedies proposed by the European Commission. In relation to damages, as this issue is covered by national contract laws, it would be necessary to see how the European rules would interplay with the national regimes. In this sense there is a higher risk of potential conflict between national regimes and the European laws if the new instrument would be a regulation. Thus, BEUC advocates to continu with the legislative technique used in the consumer law acquis, namely harmonisation through directives, as this would give member states the necessary flexibility to adapt the new rules to their legal systems. The inclusion of rules on damages must also guarantee a high level of protection and ensure that they will address specificities of digital content products that are not covered or are unlikely to be covered by national laws on damages. For example, BEUC would favour a provision on damages where defective digital content causes secondary damages to other goods (e.g. hardware) or digital content (e.g. software). However, these rules should not prevent consumers from seeking compensation based on national rules on damages that would not be harmonised by the new instrument. 15. Should users have the same remedies for digital content products provided for counter-performance other than money (for example, the provision of personal data)? Please explain. Yes, after termination of the contract the supplier should refrain from continuing processing the consumer s personal data. This solution was also proposed by the European Parliament in its first reading resolution on the Common European Sales Law proposal: 3. Where digital content is supplied in exchange for a counter-performance other than the payment of a price, such as the provision of personal data, and that counterperformance cannot be returned, the recipient of the counter-performance shall 10

12 refrain from further use of what was received, for instance by deleting received personal data. The consumer shall be informed of the deletion of personal data. (Amendment 232) BEUC supports a similar rule for the forthcoming modified proposal. Otherwise, including in a pre-termination scenario, there is no reason to limit the remedies available for counter-performance other than money. Counter-performance measures such as the provision of personal data provide significant value to the trader. Once it is acknowledged that such counter-performance is sufficient to create a binding contract, there is no sound reason to limit consumers remedies when that contract is not properly performed by the trader. 16. Should users be entitled to ask for remedies for an indefinite period of time or should there be a specific time limit after they have acquired the digital content products or discovered that the digital content products were defective? Please explain. An infinite period of time could be appropriate in some countries where this is a familiar concept in consumer law, for example in the Netherlands and Finland. However, for the sake of legal certainty and taking into account the legal diversity across the EU, BEUC would favour the application of a specific time period. 17. Should there be one single time limit or should there be two different time limits, one for the period during which the defect should appear and one during which users have to exercise the remedies? Please explain. In order to be consistent with the guarantee rights for tangible products, BEUC favours a single time period also for digital content. 18. Which time limit(s) do you think is (are) appropriate? Please explain. In principle BEUC considers that digital content products should be subject to the application of the same limitation periods as tangible goods. There is no evidence demonstrating why a shorter period is appropriate or necessary. Having the same time limit for seeking redress as is available for tangible goods does not mean that the digital products are expected to last as long as goods. The question of how long products should last must not be conflated with the question of how long consumers should have to seek redress. 19. If there is a right to damages, under which conditions should this remedy be granted? For example, should liability be based on the trader s fault or be strict (irrespective of the existence of a fault)? If the European Commission decides to include damages into the scope of the proposal, BEUC would favour a case of strict liability. This is because for the consumer it is often very difficult to prove the existence of fault. 11

13 20. Should it be possible for damages to mainly consist of 'service credits' (extra credits for future service)? Please explain. Compensation in the form of service credits is not always the most appropriate solution. Particularly, if the consumer does not want to continue with that specific supplier, service credits are nothing than future performance of a service that is not at the consumer s expectations. Additional rights 21. Should users be able to terminate long term contracts (subscription contracts) for digital content products? Yes No 22. If you reply yes to question 21, please specify under which conditions and following which modalities should users be able to terminate the contract (tick as many as may apply): Termination should be expressed in advance Termination should be made by notice Users are provided with means to retrieve its data The trader may not further use the users' data Other (please specify) Please explain your choice(s). Consumers should be able to terminate long-term contracts with a prior notice to the supplier. However, this notice should not be subject to formal requirements and be made by any means that can prove the consumers intention to terminate the contractual relationship e.g. by , letter, pre-form on the suppliers website. In relation to the possibility for consumers to retrieve its personal data, BEUC considers that this is could be an important right for consumers that want to change providers or simply store the data somewhere else (hardware, cloud computing facility, etc.). However, it is necessary to highlight that these data must be returned to the consumer in a usable format. Failure to do so creates a barrier to switching and limits competition. Additionally, we agree that after termination the trader should not be allowed to continue the further processing of the consumer s data and, it should also ask the consumer whether he wants his data permanently deleted. 12

14 23. In case of termination of the contract, should users be able to recover the content that they generated and that is stored with the trader in order to transfer it to another trader? Yes No Please explain your choice. A problem for the switching services, particularly social networks, is the lack of interoperability between the different platforms. Although this could be solved by industry standards, the possibility for the consumer to obtain his data back in a commonly usable format, would allow him to re-use these data in other platforms irrespective of whether there is automatic portability of data or not. 24. If you reply yes to question 23, please indicate under which conditions (tick as many as may apply): Free of charge In a reasonable time Without any significant inconvenience In a commonly used format Other (please specify) Please explain your choice(s). What is a commonly used format would have to be defined at a later stage, either via interpretative guidelines or through comitology. 25. Upon termination, what actions should the trader be entitled to take in order to prevent the further use of the digital content? Disable the user account Employ technical protection measures in order to block the use of the digital content products Other (please specify) Please explain your choice(s). When it comes to subscription contracts the most effective action is to disable the consumers account, however, some concerns arise in relation to permanently downloaded content. In this case, the supplier can control the further use of the content via technical Protection Measures. This is already a common practice in elending of audio-visual products or ebooks. Having said that, it is important to stress that the use of TPMs should not interfere with the normal use of the digital content by restricting for example the interoperability with other devices and software e.g. operation systems. 13

15 26. Should the trader be able to modify digital content products features which have an impact on the quality or conditions of use of the digital content products? Yes No Please explain your choice. Provided that the change in the service is at the consumers benefit and does not imply a reduction in the level of quality agreed by the consumer at the time of the conclusion of the contract. 27. If you reply yes to question 26, under which conditions should the trader modify digital content products features which have an impact on the quality or conditions of use of the digital content products: The contract foresees this possibility The consumer is notified in advance The consumer is allowed by law to terminate the contract free of charge Other (please specify) Please explain your choice(s). As far as possible the contract should foresee in which cases the contract would be to need modified. However, do to the constant evolution of technologies it could not be possible to include all factors that could justified a contractual modification? Therefore, we would rather favour a list of clauses that could be modified provided that a) the consumer is informed in advanced and, b) he or she is allowed to terminate the contract free of charge. This could include changes in: - The performance of the service, including the way the data is collected and process; - duration of the parties obligations; - additional obligations for the consumer not foreseen in the initial contract and, - price. 28. Which information should the notification of modification include? Please explain. It should include: The relevant modification and the consequence impact in the execution of the contract. The right to terminate the contract and the notice period. The means to notify the supplier about the termination. Date of entering into effects of a) the new clauses or b) termination 14

16 In case of termination, the applicable rights e.g. restitution of the consumer s personal data and confirmation that the supplier will stop processing the collected data. 15

17 Part 2 Online sale of tangible goods Context In 2014, 50% of EU consumers shopped online, rising from 30% in With an average annual growth rate of 22%, online retail sales of tangible goods surpassed EUR 200 billion in 2014, reaching a share of 7% of total retail in the EU-28. The Commission's Digital Single Market Strategy has highlighted that this economic potential should be further unleashed by removing barriers. If traders decide not to sell outside their domestic market, this may limit consumer choice and prevent lower prices by lack of competition. Today, traders may be deterred from doing this by differences in contract law which may create costs for traders who adapt their contracts or increase the legal risk for those who do not. For example, depending on the Member State, consumers may have two years, five years, or the entire lifespan of the purchased product to claim their rights. In business-to-business transactions, where no specific EU rules exist, negotiation on the applicable law may also create costs. Legal background at EU level As for digital content products, certain aspects of contract law have already been fully harmonised for online purchase of tangible goods by consumers. In particular, the Consumer Rights Directive has fully harmonised the information that should be provided to consumers before they enter into a contract and the right to withdraw from the contract if they have second thoughts. The Unfair Contract Terms Directive provides rules against unfair contract standard terms for consumer contracts. In addition, contrary to digital content products, remedies in case of defective tangible goods are also regulated at EU level in business-to-consumers transactions (under the Consumer Sales and Guarantees Directive). Nevertheless, this harmonisation only sets minimum standards: Member States have the possibility to go further and add requirements in favour of consumers. Many Member States have used this possibility on different points and to a different extent. Section 1 Problems 29. In general, do you agree with the analysis of the situation made in the "Context"? Please explain. BEUC only partially agrees with the analysis. It must be stressed that under the Rome I Regulation, parties can freely designate the applicable law to the contract. This also holds true for B2C-relationships: the Regulation allows professionals to contract under their own law, which is why standardised contract terms regularly contain choice of lawclauses. The legal framework of the Rome I Regulation has merely established a weak safety net for cases where the lex contractus chosen provides for less protection than the mandatory consumer law of the country where the consumer has his habitual residence and where the professional pursues or directs its activities to that country and the contract falls within the scope of such activities. 16

18 It is also not clear that contract law differences are a key barrier to cross border trade for business. The risk of fraud is a common concern, while the compliance costs with different tax regimes, advertising regimes, court processes (e.g. costs of litigation when enforcing court judgments) and local language requirements will often be more significant. Accordingly, when assessing the barriers to cross border trade it is important to distinguish between contract law costs, other legal costs and the general cost of doing business so that a proportionate regulatory response can be identified. Second, the analysis of the situation is somewhat one-sided as it only focuses on transactions costs of businesses while ignoring the problem that consumers are reluctant to shop online because they lack confidence in the online marketplace. While businesses may operate their product- and financing strategy under various laws, consumers face substantial difficulties when leaving their familiar legal system due to their economic inferiority. When it comes to internet shopping, consumers are even more in a weaker position than in high street shops as they cannot see the product or meet with the trader. It makes it more difficult for a consumer to establish whether an online trader is trustworthy or not, especially when shopping cross-border consumers have to rely on what is advertised on the screen ( who is behind the screen? ). Furthermore, a major inhibiting factor to buying online is the fear of not being able to obtain redress or compensation in the event of a problem. (BEUC reflection paper on E-commerce, Ref.: X/030/ /05/10). The purpose of the initiative, to improve the conditions for the functioning of the internal market, will therefore not be achieved unless the consumers needs are adequately addressed. Third, the analysis fails to address the issue whether the establishment of an additional set of contractual rules for online-purchases of tangible goods is appropriate to address the asserted problem of fragmentation and compliance costs. In fact, the creation of a second legal guarantee scheme for online purchases only would lead to more fragmentation, less legal certainty, and the 'second class' protection of consumers buying in the 'physical' world. We are therefore sceptical about the introduction of specific rules for distance selling since this will be confusing for consumers. If, however, the Commission decides to create a specific harmonising instrument, the support of which will depend on 1) the range of matters covered by the scope of application, and 2) the level of consumer protection. Full harmonisation can only be supported when the level of consumer protection is truly high, existing consumer protections across Member States are not watered-down, and the issue at stake necessitates such an approach. However, in view of the potential problems to find fully harmonising legislative solutions which satisfy all EU consumers expectations, we remain sceptical about the announcement of new rules for the online purchase of tangible goods. 30. Do you think that users should have uniform rights across the EU when buying tangible goods online? Please explain why by giving concrete examples. First and foremost, consumers should benefit from a high level of protection by consumer law when engaging in cross-border transactions. The support of full harmonisation will, again, depend on whether the level of consumer protection is truly high and whether the issue at stake necessitates such an approach. 31. Do online traders adapt their contract to the law of each Member State in which they want to sell? If yes, do they face difficulties/costs to do so? Please explain. 17

19 According to the Eurobarometer Report on European contract law in consumer transactions of 2011, only 7 % of businesses consider the "need to adapt and comply with different consumer protection rules" as having a large impact on their decision to sell cross-border to consumers. The flash Eurobarometer Report 300 shows that 80 % of the traders believe that harmonised contract law in the EU would make little or no difference to their cross-border trade. Notably, these figures refer to a time before the provisions of the Directive 2011/83/EU of consumer rights had become operational. The Directive has, inter alia, fully harmonised certain core rules for distance and off-premises contracts with the aim of reducing compliant costs for businesses. It can therefore be assumed that the above mentioned numbers are even lower now. Furthermore, BEUC believes that, in order to assess the repercussions of the difficulties for online traders to sell cross borders, the results of the not-yet submitted EC report on the application of the Rome I Regulation, in particular as regards the application of Article 6, shall be taken into account. 32. Do you think that any such difficulties and costs dissuade traders from engaging at all or to a greater extent in cross-border e-commerce? Please explain. See answer to question 29 and 31. Section 2 - Need for an initiative on contract rules for online sales of tangible goods at EU level 33. The European Commission has explained in the Digital Single Market Strategy that it sees a need to act at EU level. Do you agree? Please explain. BEUC sees a need to act at EU level in the field of digital content products (see Part I, answer to question 5). When it comes to tangible goods, BEUC recognises that legal harmonisation is a regulatory tool for B2C contract law which may improve cross-border e-commerce since it has the potential to boost clarity for both consumers and traders. However, the creation of diverging rules for online and offline transaction in the field of legal remedies and unfair commercial terms are problematic. There is a risk of exacerbating consumer and business confusion over the applicable rights in any given set of circumstances leading to the risk of unnecessary disputes. There is also the potential impact on competition between online and offline retailers to consider. If the Commission nevertheless decides to create uniform rules, they can only be justified when they institute a truly high level of consumer protection (see answers to questions 1 and 2). 34. The European Commission announced in the Digital Single Market Strategy that it will make a proposal allowing traders to rely on their national laws based on a focused set of key mandatory EU contractual rights for domestic and cross-border online sales of tangible goods which would be harmonised in the EU. Other approaches include, for example, the development of a voluntary stakeholders' model contract that consumers and businesses could use for their cross-border e- commerce transactions. What is your view on the approach suggested in the Digital Single Market Strategy? 18

20 BEUC strongly opposes the proposal of creating a rule allowing traders to rely on their national laws. Certainly, the gravity of the potential creation of such a rule would depend on the scope of application of the future instrument, however, the Commission must take into account that the trader s home option would have serious repercussions on the current regime of conflict of laws rules, in particular the Rome I Regulation. Under its current regime, the law of the country where consumers are domiciled will apply by default and consumers can, as a general rule, not be deprived of the level of protection afforded to them by the mandatory rules of their home country, in case the professional pursues or directs its activities to the country where the consumer has his habitual residence and the contract falls within the scope of such activities. Article 6 is therefore regarded as an important safeguard for consumer rights which should not be undermined by a future instrument (see also answer to question 1). In this respect, it shall also be noted that under the current regime of private international law, the court of the country where the consumer is domiciled will regularly apply the lex fori. Any rule that obliges courts to always apply foreign law would lead to serious disadvantages for consumers, who would have to rely on foreign law if they were to make a claim in the courts of their country. Consumers could very hardly estimate their chances when litigating and thus would more than now be precluded from access to courts. Consumers would also need to adduce expert evidence of the foreign law, which is likely to generate disproportionate cost, discourage ADR contrary to the aims of Directive 2013/11/EU (on consumer ADR), and render existing consumer rights ineffective because they cannot be enforced in practice. For a long time, BEUC has asked for a European Model Contract (EMC) that does not displace national law but should make it practically redundant for most imaginable consumer disputes. Crucial to the practical effectiveness of the rules is the link to a process of Online Dispute Resolution (ODR). The EMC concentrates on the rule for forming contracts and dealing with delivery and quality of goods as well as payment. The proposal is limited to sale of goods contracts. This is seen as the sector most likely voluntarily to adopt this proposal. Its advantages will include the fact it is voluntarily adopted by business and supported by consumer organisations, involves no issues of legal competence or private international law, promotes ADR and can be adopted quickly (BEUC, A European Model Contract for E-Commerce Businesses to Consumer Sales, X/2012/023-12/04/2012). In view of the possible consolidation of the rules on off- and online contracts due to the REFIT of the Directive 1999/44/EC, BEUC considers that the EMC could, in the meantime, serve as a useful option. The Commission is silent on the question how to link the initiatives on online and offline contracts. To a voluntary model contract for digital content products, see under Part I, answer to question 6. Section 3 Content of the initiative 35. Do you see a need to act for business-to-consumers transactions only or should the EU also act for business-to-business transactions? Please explain. BEUC does not support the inclusion of B2B contracts in a future instrument. In light of the different characteristics of B2C and B2B contracts and taking into account possible frictions between a comprehensive legal instrument and already existing legal instruments, such as the Vienna Convention (CISG), a B2C-only approach promotes the need of simplicity and predictability. 19